Annex B
OPPORTUNITIES AND CHALLENGES FOR THE CREATIVE
INDUSTRIES
1. NEW BUSINESS
MODELS AND
CONVERGING MEDIA
PLATFORMS
Technology enables content to be delivered in
new ways to different devices to be consumed in a multiplicity
of ways, and the Internet in particular has transformed the content
industries. We need to fully exploit the exciting new opportunities
technology is opening up to access content for learning, business
and leisure. Nearly all of us have mobiles, over 50% of Internet
connected homes are now broadband enabled, and 66% of households
have digital TV—the highest national penetration in the
world. The UK consumer's appetite for new services and devices
shows no signs of abating and in the next few years the pace of
change is likely to be even greater. This is resulting in a matching
rapid evolution of business models and, at the same time, recognition
that new and emerging business models must benefit everybody in
the value chain. In this dialogue the technology providers are
key participants, since they enable new and exciting methods of
content distribution through a variety of electronic communications
infrastructures and delivery platforms.
Convergence
Digital convergence across the telecoms, IT,
broadcasting, media, and content sectors offers the opportunity
for companies and their customers to do things differently, reflecting
the changing nature of the world in which we now live, where we
can use mobiles to watch film, use the TV to play games, use the
internet to make phone calls. Digital content and services (eg
online music, online video, online games and online publishing)
are the main beneficiaries of convergence, and face the greatest
challenges. Convergence is driving an ever faster world where
information and content are increasingly digitised, personalised
and accessible "on demand" via multiple fixed and mobile
platforms and devices.
These sectors are the growth engines of the
knowledge economy and convergence is now starting to have a real
impact in the UK as ever more bandwidth becomes available, enabling
UK industry to capitalise on the opportunities. As countries compete
for leadership in the global knowledge economy, success will depend
upon how quickly countries can leverage the opportunities for
innovation, investment and economic growth presented by convergence.
The UK's broadcasters, ISPs, mobile operators, content, software
and electronics companies are all rising to the challenge and
many organisations in the Creative Industries are responding by
developing digital portfolios, which extend their brands across
multiple platforms and technologies.
Broadband
2005 was a watershed as we saw the acceleration
of broadband with more compelling and engaging content and applications.
Also, in June 2005 there were for the first time more broadband
than dial up connections in the UK. The Creative Industries have
a key role in supplying the stimulus for increased use of on-line
services through demonstrating the value that content-rich applications
can provide for consumers and businesses.
Over 99% of the UK's population can now take
advantage of broadband and next-generation broadband, ADSL2+,
is now being rolled out with a promise of even greater speeds.
Each time the networks press the broadband accelerator pedal,
the content community responds with content ideas, which in turn
encourages broadband adoption. The exciting reality of convergence
is a virtuous circle. For example, 46% of broadband customers
download music, film or video clips, compared with only 22% of
dial-up users. Some industry commentators suggest a seismic shift
is poised to happen in video content the way it did with music
content.
Broadcasting
The growth of digital television, digital radio
and broadband platforms is giving consumers greater access to
improved on-demand, interactive and multi-channel services. There
are now more channels than ever before and very soon, consumers
will be able to watch or listen to audiovisual content anytime,
anywhere, and on all technical platforms (TV set, computer, mobile
phone, personal digital assistant, etc). Moreover, switchover
from analogue to digital broadcasting will deliver greater choice
and new services for consumers that will bring substantial economic
benefits. The cost benefit estimate for the UK economy published
in February 2005 is £1.7 billion Net Present Value (NPV)
for switchover by 2012. This will be achieved primarily by extending
digital terrestrial services and bringing forward the release
of spectrum for new/innovative uses, although any proceeds from
sale of spectrum have not been included. Digital switchover will
also help the UK continue as a world leader in broadcasting.
Changing value chains
The combination of the freeing up of spectrum
following digital TV switchover, the advancement of broadband
and the Internet, convergence, High Definition Television (HDTV)
and increasing consumer demand for content to be made available
via all platforms will have a significant impact on the Creative
Industries, broadcasters and mobile operators. It will also impact
on a whole range of other industries: the systems design, mobile
communications, optoelectronics/telecoms equipment, displays,
software, chip, games and storage industries. The growth of online
paid content via fixed and mobile platforms is now rapid. New
technologies being developed to provide the tools for digital
content creators and distributors will help to underpin this growth
to its full potential.
Convergence is creating both winners and losers,
generating and destroying value. Deloitte predicts that worldwide
convergence will lead to a massive USD1 trillion shift in valuations
and revenues in the converging sectors by 2010. As such, it represents
both a disruptive threat and a huge opportunity for companies
who need to be increasingly bold in identifying new opportunities
and devising more inventive ways to reach customers. Both large
and small companies will be involved; SMEs including social enterprises
are often more innovative and can move faster than larger companies.
Importance of the consumer
The consumer's voice must be heard in the UK's
fast converging market for telephony, broadband and television.
Consumers want choice, flexibility and protection. They expect
products and services to work together, seamlessly, and will have
little patience in the future if industry does not tackle interoperability
as an issue. The introduction of new technology has also increased
the risk of consumers being deceived through means which are becoming
more elaborate and intrusive than before and this has been recognised
at European level (for example, the Unfair Commercial Practices
Directive). A related issue of growing concern is identity theft.
Action to protect consumers and increasing media literacy helps
all socio-economic groups access and benefit from a growing range
of content and services.
User-generated media
Digital technologies empower creators and consumers
alike as content and the intelligence in the network increasingly
reside in the periphery in the hands and minds of individuals.
This contributes hugely to the intellectual and social capital
of our communities by unleashing the creativity of individuals
to participate, share and contribute content on a proliferation
of existing and new digital platforms. For instance, the BBC's
"Creative Archive" enables viewers to access archived
audiovisual material as an opportunity to be creative in new ways.
In this more symmetrical world the user is more engaged, actively
contributing to and interacting with services rather than simply
passively consuming them. User-generated media such as blogs,
podcasts and wikis are on the verge of mainstream adoption, promising
an age of creativity. It is broadband and the corresponding peer-to-peer
activity that is enabling this fundamental behavioural change
in our society.
Reducing the digital divide
The threat of convergence is the risk of a "digital
divide" both within and between countries and massive inequalities
in the distribution of access to communications and digital capacity.
That is why community building initiatives involving partnerships
between the private and public sectors, social enterprises and
the cultural sector are important. Government and industry recognise
the importance of digital inclusion and digital literacy campaigns.
Also, jointly we need to spread the benefits of convergence across
the whole UK—to urban and rural communities, to all socio-economic
groups and to individuals, whatever an individual's level of digital
sophistication.
2. INTELLECTUAL
PROPERTY—IMPACT
ON CONTENT
CREATORS OF
NEW TECHNOLOGYNew
technologies and changes in telecommunications, broadcasting and
information technology services may have implications for copyright,
intellectual property and moral rights. Some of these changes
raise questions about notions of authorship and others about the
role of arts and cultural institutions in the collection, exhibition
and conservation of arts and cultural material created through
new technologies. Innovation is accelerating, in particular access
to content over different platforms.
Challenges
Many consumers have regarded access to free
content (especially music) as a stimulus to connect to broadband.
Peer-to-peer file sharing networks have been a driver for many.
If the UK is to exploit its creative strengths, a culture must
be created where content producers' rights are understood, respected
and enforced; otherwise there will be no scope for on-going investment
in the content market. On the other hand, the Internet has opened
up a new distribution network and enables new creators to share
ideas and find an audience. The challenge is to harness consumers'
passion for content and develop legitimate services that meet
user demand and encourage further investment.
Legal framework
The success of the Creative Industries relies
on a robust Intellectual Property regime that rewards innovation,
creativity and investment whilst meeting the legitimate expectations
of consumers and citizens. It is therefore important that the
Intellectual Property legal framework is up to date, and meets
the needs of the digital age. The digital world poses unprecedented
threats because it allows perfect copies to be made available
to millions of others.
Digital rights management
Digital Rights Management (DRM) is an umbrella
term referring to any of several technical methods used to handle
the description, layering, analysis, valuation, trading and monitoring
of the rights held over a digital work. DRMs are essential to
policing the appropriate use of digital content, as well as facilitating
new and innovative ways of making creative products available
to the consumers who want them, in the way they want them. They
make possible the consumption of content in ways that would have
been inconceivable just a few years ago and new solutions to allow
digital media content to be legally moved across platforms will
help unleash the full potential of broadband networks. It is important
that DRM systems balance the rights of content providers and the
legitimate expectations of consumers, and good communication is
essential so that proportionate protection is accepted. DRM development
is now a big business with a wide variety of effective systems
available but end-to-end interoperability challenges of DRMs remain,
something that needs resolving to enable full market take up.
Music industry
In the utilisation of DRM, the music industry
has been a litmus test, largely because they have been affected
to such a great extent by online piracy, but also because, as
a consequence, they have had to start looking hard at how they
can turn the online world to their advantage. The old model of
going into a shop and buying a CD off the shelf still commands
a lot of the market, of course, but it is not where the future
growth will come from. It is unlikely that online stores will
simply replace the physical version, either, though the likes
of iTunes show how effective they can be, particularly in exploiting
the "long tail".
There are already a whole mass of ways to offer
music to consumers, from simple downloads to subscription models
and legitimate peer to peer models, and enabling technologies
such as DRM are being exploited to give consumers unprecedented
choice. The music industry has recognised that business models
need to evolve. Recent industry figures show that during the first
half of 2005 digital sales tripled to $790 million, when at the
same time physical sales of music declined by 1.9%. The number
of legal download sites also tripled to 300, and there have been
180 million legal downloads, three times more than in 2004. This
shows that, if consumers are given a legitimate and attractive
alternative to pirated products, they will buy them. Offering
consumers compelling new content in innovative ways, simple for
the consumer to use and at a fair price, must be the way forward
for all the Creative Industries.
Publishing sector
The book publishing industry, in common with
other sectors of the Creative Industries, faces tough challenges
on preserving and exploiting copyright. Ensuring there is an effective
and efficient copyright protection regime across the EU and internationally
will remain a critical factor in determining the competitiveness
of the publishing sector. The advent of Google Print, Google Library
and other Internet related search and sales organisations is seen
as a threat by many traditional book publishers as well as by
authors, agents, librarians and retailers. The functionality of
search engines means that it may be inevitable that the book industry
follows the music industry into an illicit file transfer and download
culture, and the industry questions whether and how Google and
its peers are facilitating this, or working to prevent it. The
publishing industry needs to consider whether new licenses and
rights need to be put in place to enable Google and publishers
to co-exist and to develop new business models.
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